Demographics, migration and technology will reshape Europe’s workforce – Central Bank of Ireland Governor Gabriel Makhlouf

22 September 2025 Press Release

Central Bank of Ireland

Central Bank of Ireland Governor Gabriel Makhlouf spoke in Paris this morning at the Organisation for Economic Cooperation and Development (OECD) about how demographics, migration and technology will reshape Europe’s workforce.

The speech was part of the OECD seminar series ‘The Lectures of the Governor’.

Governor Makhlouf said in the face of unprecedented shocks in recent years, the Euro area labour market has held up exceptionally well. However, looking ahead some labour market cooling is expected.

While this reflects a cooling of labour demand, Governor Makhlouf said the employment growth slowdown also reflects demographic factors that were initially rather slow-moving, but are now beginning to bite.

Makhlouf said: “Between 2024 and 2027 the euro area working age population is projected to fall by 0.7% (or 1.5 million workers between the ages of 15 and 64).

“The longer-term impact is stark: the ‘old-age dependency ratio’ in the euro area, that is, the population aged 65 and over as a proportion of the population aged 15-64, is set to increase sharply from 33.7 in 2022 to 51.2 in 2050.

“An older population with lower consumption and higher savings could place downward pressure on aggregate demand, limiting price growth in certain sectors. This aligns with the “secular stagnation” hypothesis, which has argued that ageing societies are more prone to disinflationary forces. At the same time, a shrinking working-age population will tighten labour markets in the absence of increases in labour force participation rates. This puts upward pressure on wages that feed into services inflation. Moreover, as older cohorts consume more health care and age-related services; relative price increases in those areas may become more entrenched. The balance of these effects is hard to predict, but one potential outcome is higher structural inflation in labour-intensive, non-tradable sectors (i.e. services), even as weak aggregate demand keeps headline inflation subdued. This creates an environment in which inflation dynamics are increasingly segmented, complicating the job of central banks that aim to stabilise prices economy-wide.”

Governor Makhlouf said that with shrinking populations, increasing labour force participation is a necessary part of the solution.

“We also need to look beyond the traditional definition of working age population as 15-60/64 years of age and boost participation in the post-60/65 population. In a world of longer lifespans and health spans, sustaining living standards will need people to work beyond what is currently considered ‘typical’ retirement age,” Makhlouf added.

Governor Makhlouf said that an ageing population, declining fertility and shrinking work forces will drag on employment growth and therefore economic growth in the coming decades, with migration only offering a partial – albeit important – solution to the challenge.

He said: “The point here is not so much to get bogged down in population or migration projection scenarios – which, as I said, are highly uncertain, but rather to highlight the extent to which migration can help mitigate the demographic and growth drag from ageing populations and falling fertility rates. This could allow time for governments to develop and implement other policies, mainly around labour force participation and productivity.”

On the drivers of productivity growth in Europe, Governor Makhlouf said: “On the policy front, implementing the proposals in the Draghi and Letta reports, mainly around completing the Savings and Investment Union and removing barriers that restrict trade in goods and services in the EU single market, must be a priority. You will not be surprised to hear that this was a topic of conversation at last week’s meeting of EU Finance Ministers and Central Bank Governors.”

Governor Makhlouf said that while we are still in the early take-up phase of AI technology, adoption of the technology is historically fast. He said: “What we have seen so far in terms of the use of AI, including in my own organisation, suggests that it has the potential to disrupt existing employment patterns, both as a substitute for existing labour through the automation of certain tasks and as a complement to existing skills. Together, this will create new opportunities for workforce growth and productivity gains. We need to prepare now for the changes that are coming. This means, among other things, more flexible labour markets that allow for worker mobility within and between firms, as well as across sectors and occupations. It also means providing training opportunities for workers, both younger and older, to drive upskilling and support transitions to new roles that may not even exist yet.”

Concluding his remarks, Governor Makhlouf said: “To sum up, what the data is telling us is that our societies are facing a series of important choices if we want to sustain or improve our future living standards (or, perhaps more accurately, for some of us at least, the living standards of our children and grandchildren).

“Our choices are likely to involve improvements in our productivity, an increase in labour market participation and inward migration. In my view a combination of these, they are not mutually exclusive, offer us the most effective route to building the best opportunities for our grandchildren.”